Blog:Pils, thrills and headaches

All brewing eyes will be firmly fixed on Germany after today’s announcement that Carlsberg has made a takeover offer for one of the country’s leading brewers, Holsten.

It could prove to be one of the most contentious acquisitions in the brewing industry for many years.

Carlsberg was known to be on the look out for takeover targets. But the acquisition has still come as a shock, given that Holsten announced in December it had abandoned its strategic search for a buyer.

The acquisition will no doubt divide opinion among Carlsberg’s investors. Despite a reasonable price tag for a leading brewer in Europe’s largest beer market, the Danish brewer is buying into a market in decline.

To make matters worse, Germany remains extremely fragmented, even after the recent round of consolidation that has preceded this deal. There are roughly 1,660 breweries in the European Union. Nearly 1,300 of those are in Germany, and more than half of those have an annual production capacity of only 5,000 hectoliters.

To make the situation even more complicated, the structure of the deal has already come in for criticism, with one report arguing that Carlsberg’s plan to sell off around half of Holsten’s assets makes this a half-hearted effort.

In Dow Jones’s “The Sceptic” column, the author writes: “If Carlsberg ever wanted to compete head to head with rival Interbrew in Europe's biggest beer market, it probably just blew its chance.”

The purchase of Holsten could have given the Danish brewery the opportunity to take second place in Germany. But by selling two of the company’s top brands Koenig and Licher, Carlsberg has settled for 5th place.

It appears instead that Carlsberg intends to use Holsten’s distribution to grow its flagship brands Carlsberg and Tuborg organically. How the German market – notorious for its domestic loyalties - will take to these foreign brews remains to be seen.